Enormous, Humongous Trade Deficit Falls, Thanks To Oil And Exports

This morning the U.S. Census Bureau’s Bureau of Economic Analysis released trade deficit figures for November. The enormous, humongous trade deficit in goods and services fell from $39.3 billion in October to $34.3 billion for November. Even though this is still an enormous, humongous deficit it is good news because this is the lowest trade deficit since September, 2008. And the reasons behind this hint that the economy might be getting better.

Most of the reason for the fall in the enormous, humongous trade deficit was a drop in oil imports and a jump in exports (airplanes, autos, machinery and oil) to $194.9 billion.

The monthly U.S. goods deficit with China was $26.9 billion in November, down from $28.9 billion in October. However the 2013 trade deficit with China of $293.9 billion is running ahead of 2012’s balance of $290.6 billion. Note that U.S. exports to China hit a record, which might reflect a rebalancing of China’s economy toward consumption, which would be incredibly good news for us if this is right.

The U.S. goods deficit with Japan was $5.8 billion in November, down from $6.4 billion in October.

The deficit with the European Union dropped 29.4 percent in November to $10.1 billion.

Trade Deficit = Lost Jobs

When trade is balanced, that’s fine, because it means other countries are buying the same amount of stuff – goods and services – as we are. But if we buy more from other countries instead of from here, that is money for jobs in those countries instead of here. That is why a trade deficit is bad. It represents lost jobs and prosperity.

Some economists say a simple rule of thumb is that for every $1 billion in trade deficits the economy loses 9,000 jobs. The 2012 trade deficit was $540.4 billion. Do the math. (Hint: 540 x 9,000 = more than 4.8 million jobs.) Never mind the effect on the wages and “job fear” for everyone else.

About Dave Johnson

Dave has more than 20 years of technology industry experience. His earlier career included technical positions, including video game design at Atari and Imagic. He was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.